I see it stated a lot in social justice circles that the path to building ‘generational wealth’ is via home ownership, but having lived with homeowners, that doesn’t seem to make sense. From the outside it looks like something you throw money into for decades, and then die and the bank takes over. How does just having a mortgage start to accumulate wealth???
In: Economics
Home ownership builds equity. Yes, there are costs associated with owning a home, rarely is a home *profitable*, but you don’t often own a home for profit. And even if you don’t generate a profit, you still own a tangible piece of property that retains *value*. You can always *sell it*. Even if you don’t pay your property taxes and the government forecloses on your home, they sell it off, take their cut + penalties, and you still get the rest, because that was your equity. If you wanted to take out a loan, you could offer your home as collateral to back the loan, so that if you defaulted, the lender would at least have some property worth some money they could sell and reclaim their losses, and in turn, you can negotiate a better rate than merely your credit history that only *suggests* you’re probably good for it.
And when you die, the property goes to your estate, and someone, like your children, inherit that ownership. They can sell it off.
What real estate people do is they play the game. They buy a house, wait for market value to increase, and then sell it. Rinse, repeat. 15% capital gains tax is way lower than my income tax bracket. Know who pays 15% income tax? People 1 dollar above the poverty line. You can buy and sell houses like this and accumulate a bit of wealth. You can rent that property in the meantime. Eventually, you can become a slum lord, owning a bunch of property and renting it all out. Eventually you’ll make more money than the cost of maintenance, which, as the property owner, is your burden. And all you have to do is assume some risk of renting – and that’s the catch. Renters might not pay you, then legally evicting them can take 6 months and is littered with gottchas that, if you screw up, you have to start the whole process over. Meanwhile, they’re squatting in your house you’re not getting paid for, and likely destroying it. They’ll walk away Scott free with nothing but a bad credit score and you’ll have to rehab a whole house which can cost tens of thousands.
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